The new year will bring many changes and their associated risks and opportunities. With President-elect Barack Obama leading the U.S. through one of the murkiest financial times in history, many are looking toward China in the year of Yi Chou, or the Ox, as we contemplate alternative funding sources, manufacturing locations, and sites for performing clinical trials.
It appears that China is poised to become one of the new centers of innovation. China intends to soon grant more patents than any other country and expects to entice most of the top pharmaceutical companies to conduct R&D within its borders. It is believed that China’s government may show more incentive to enforce patent rights within the country if the local companies in China feel that they have innovative technologies and are, therefore, stakeholders in the growing biotech industry.
China’s patent laws were initially created in 1984, long after most other countries worldwide. The patent laws have been revised two times since 1984, first in 1992 and again in 2000. A third proposed revision is expected to be finalized early in 2009 by the PRC State Intellectual Property Office (SIPO). Part of the intent behind the proposed amendments is to provide China with protection that will be both in line with national interests and supportive of domestic innovation.
In the past, investors have been reluctant to put their money in a country where patent protection and enforcement are unpredictable. Even though China has an obligation to protect intellectual property (IP) since joining the World Trade Organization in 2001, efforts toward IP protection have not been evident.
Several foreign business associations, especially from Europe and the U.S., have been closely monitoring the drafting process and actively lobbying for specific changes. There have been many concerns, especially over the requirement that an applicant disclose the source of genetic material as part of the patent application process and proposals for substantive requirements not found in TRIPS, an international agreement administered by the World Trade Organization that sets down minimum standards for many forms of IP regulation.
With respect to enforcement, the proposed amendments include raising the penalty for patent infringement from 300% to 400% of illicit profits and increasing the damage payment from 50,000 yuan to 200,000 yuan, even if there is no profit from infringement. It is believed that such deterrents will change the perception that China is too lenient with respect to enforcement of IP rights, especially for foreign patentees.
Article 48 of the amendment allows the granting of a compulsory license when a patentee is determined to be abusing his IP rights in order to prevent or restrict competition. In addition, the draft amendment outlines several situations where a compulsory license for a patent may be granted by the SIPO—Articles 49 and 50 allow for the granting of a compulsory license in order to treat or prevent an epidemic in China, or when a developing country needs to import a pharmaceutical product from China for the same purposes. In the U.S., a similar provision is called march-in-rights.
What is more disconcerting is the proposal to grant a compulsory license, upon request, for the use of a patented invention if the patent owner, “without any legitimate reason,” has not “adequately practiced the patented invention for three years after issuance of the patent…” This section of the compulsory license amendment may be especially prejudicial for the biotechnology industry.
Consider the typical situation where a technology is under development and a patent application is filed in the U.S., followed by a PCT (Patent Cooperation Treaty) application, and then later filed in China.
In many instances, the claims that are issued or granted in a patent (the patented invention) are not actually practiced at the time of the patent grant or even within three years of the patent grant. Should companies consider setting up a small clinical trial in China as soon as the Chinese patent is granted? Would that qualify as adequately practicing the claimed invention?
The ambiguity in the language of this proposed amendment, combined with the potential impact of patentees losing rights in China for inventive contributions as determined by the SIPO makes this section particularly disturbing for life sciences companies seeking patent protection in China.